Elon Musk’s $US55bn Tesla pay package struck down by judge
The Delaware Court of Chancery has rejected the multi-billion-dollar pay initially approved for Elon Musk in 2018, a major setback for the entrepreneur.
A Delaware judge struck down Elon Musk’s multibillion-dollar pay package at Tesla TSLA after finding the process for securing its approval “deeply flawed,” a major setback for the chief executive of the world’s most valuable automaker.
The decision, issued Tuesday in the Delaware Court of Chancery, calls into question how Tesla’s board plans to compensate Musk, a serial entrepreneur with an array of other business interests.
It also puts greater attention on Musk’s personal wealth, much of which is tied up in shares of his companies. He sold a portion of his Tesla shares to help purchase Twitter-turned-X in late 2022.
“The process leading to the approval of Musk’s compensation plan was deeply flawed,” Chancellor Kathaleen McCormick wrote in the opinion, citing Musk’s “extensive ties” with those negotiating his most recent pay deal, which shareholders approved in 2018. The pay package was valued at a maximum of $US55.8bn ($AUD82bn), McCormick wrote.
Before the opinion landed, Musk had begun pushing for greater control over Tesla, where he’s the largest shareholder with 13 per cent ownership. Earlier this month, he said he feels uncomfortable transforming Tesla into a leader in artificial intelligence and robotics unless he controls around 25 per cent of the company.
Musk’s 2018 pay package, which consisted of 12 tranches of stock options, had fully vested, though he had yet to exercise any of those options.
A Tesla shareholder, Richard Tornetta, asked Delaware’s business-law court to cancel the pay deal, alleging the Tesla CEO controlled the approval process and that the board misled investors, who signed off on it. Musk has said he didn’t dictate the terms of his pay plan. The case went to trial in late 2022.
“Never incorporate your company in the state of Delaware,” Musk tweeted Tuesday after the decision was released. An attorney for the plaintiff praised the decision.
Tesla shares fell 3.6 per cent in after-hours trading Tuesday.
The nonjury trial unfolded in the weeks after Musk acquired X, the social-media company formerly known as Twitter, a tumultuous period in which the takeover drew the CEO’s attention away from Tesla. Musk also runs rocket company SpaceX and is a founder of neuroscience company Neuralink and the tunneling firm Boring Co.
Musk’s outside commitments were top of mind as Tesla’s board began contemplating a new pay package for Musk in 2017, board member and compensation committee chair Ira Ehrenpreis testified at trial.
“I was thinking about how do we keep him engaged at Tesla?” Ehrenpreis said.
The compensation plan Tesla’s board devised was highly unorthodox: no cash and a dozen tranches of stock options that would vest when the company achieved a combination of operational and market valuation milestones.
For all 12 tranches to vest, Tesla—valued at less than $US60bn at the time and bleeding money—needed to reach a market capitalization of at least $US650bn while also hitting various revenue and profit targets. The company cleared the last of those hurdles in 2022.
Musk’s level of control over Tesla’s board also took center stage during a 2021 trial in Delaware over the company’s acquisition of SolarCity, another Musk business. The judge in that case sided with Musk, finding that the board meaningfully vetted the deal for the solar company, though Musk was too involved.
The Wall Street Journal
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